How the attacks on the Fed could backfire

Subscribe to enjoy similar stories. The Trump administration’s efforts to bludgeon the Federal Reserve into lowering its policy interest rates appear unlikely to have their desired effect. Indeed, they conceivably could backfire and forestall the rate cuts that the central bank officials and the markets anticipate for this year.

While that outcome would disappoint financial markets, other efforts by the administration to reduce borrowing costs for consumers and home buyers may have some limited impact. That may provide a political fillip ahead of November’s midterm elections but not much more. Still, Main Street would fare better than Wall Street as the current White House resorts ever more to the Nixon command-and-control economic playbook.

The conflict between the White House and the Fed escalated this past week with Chair Jerome Powell’s strong rebuttal against the Justice Department’s criminal investigation into the his congressional testimony regarding the central bank’s renovation of its office buildings. The Georgetown law graduate sharply changed tacks in dealing with his critics, from President Donald Trump on down. Instead of calmly parrying their jibes, as he has in the past, Powell counterpunched, contending the allegations were pretexts to get the central bank to lower its interest rates.

Perhaps as stunning was the reaction of the financial markets—that is, their lack thereof. Currencies, bonds, and stocks appeared to be nonplussed. Whether the markets were surprised, confused, or simply unperturbed can’t be inferred definitively.